hard place. the s&p drive show record high. and well, ferkt the bonus, used to wall street scream on compensation, it blinks. this is friday, august 22. let's get to a brief, can i do a surveillance correction? i said grabbed tetons, but it's grand tetons. >> you were sounding like you were from boston. >> i was sounding like an idiot from the east. cost hit the ng new low yesterday, have to deal with deflation. that's the issue over in europe. earnings here before the bell, got basically foot locker. no you're struggling. >> i did. and a couple of items of note in

jan net yellin is speaking. >> yellin is behind closed doors. >> both of them are i believe. et, think we get with jan the -- >> it's not going to be too far out. >> we've got a prepared data check, we look at commodities, i struggled. future's flat, i'm going to call that negative 1, everybody getting the bond call one over the last 12 months. 1.3278. weaker, crystals and pyramids to make up this screen. the vicks, 11.76. again, great equity markets back over 17,000. 30-year bopped-year-old, i use 2.30 as a bench mark.

we are beneath that. and the german 10-year yield is under a 1%. this is what janet yellin confronts in jackson hole to the block berg terminal. this is the beginning of the financial crisis, we're all going to die, up we go, this ill be the big debate. this, adam, is the backdrop that she faces. >> well, i tell you what, can we just go to the chart one more time because i want to point something out. pull that chart up one more time. there's the correction. >> this is the correction. >> the 4.2% of two weeks ago. >> quick, we're all going to die! >> isn't it unbelievable. every time the market trades down 2% we've got guys saying this could be the big one. no. >> look at apple computer, well

over a hundred presplit, $700 a share. speaking of the front page, we struggled with websites, scarlet fu is an interesting front page. martin .s. the only way dempsey, however, neither dempsey or our defense secretary has indicated that president obama would actually ok air strikes in syria which would be the form of intervention they would take. chuck hagel said we are looking at options. leaving a lot of things on the table. >> sure is. admittedly, i don't know why i even say this, but you think about vietnam, we went across the border in pretty cambodia, you think -- >> i'm glad you spring this up because it speaks to border. if you fly between iraq and

syria do you see a border? >> no, there's no flag that says it ends here. a lot of these borders were imposed in the 20th century. >> the border is just uncontrolable between russia and yao crane. robert hob wits will join us in the next hour. >> u.s. high yield bonds, invests returning to junk bods after an unprecedented with draw. you showed us that correction in equities. people pulled out of those funds and yields had reached the high pause of that. then they have fallen slightly. >> doug cast joined us yesterday, he bought me a new york yankees hat. did you see the photo. >> did he make you wear it? >> the red sox are in last place and the kansas city royal's are in first place. but doug is a short, he's a

moderate short, and he's humbled. just works higher, pushing, killing shorts. >> anyone who's been short has just, short, cover. go back out there get short, cover. >> doug was always interesting, but really humbled yesterday. >> really humbled. we also see corporate debt to set a record. almost a trillion dollars worth of bonds sold in the united states. >> you know yellin induced, drawingen induced. >> some would say. >> argentina will have to devalue for the second time this year. the pesso has fallen more than 1%, the biggest drop since they devalued it back in january. >> the argentine bond trading at .80 on the dollar. other words, they're saying this is like a technical thing because the one judge who said no argentina you can't actually

deposit funds in that one account because you've got to work out that ore one but they have to put the money in the -- >> i saw a reporter at our famed world headquarters. she looked like she had sleep. >> she had sleep. >> what's knew now about argentina versus the plow up of two weeks ago. >> that's a good question. the markets seem to believe something will happen. they've reached a point where something has to be done. a matter of how much longer they hold out while the president tries to sort out this whole deal. >> let's do something we love to do, rip up the script right away, our guest host is the global head of g 10. done too many panels, we're going to talk about janet yellin, let me go right to argentina. do you care about them? >> certainly investors are asking questions about argentina. it is one of those big shorts in

the current si side. guys like ourselves are saying the current si could lose like 25% despite the fact that we are trading so far into par on the bond side of things. >> they have to consider argentine, is that feasible? >> no, there's some to places like brazil, but i think you can see argentina's very much an isolated case. >> let's look at 10:00 a.m. this morning. from ill you listen for janet yellin? >> the way they refer to under employment, it's underemployment in five, six different ways. let's see if she adds onto some of the remarks she's made before on the same subject. i'm strucking to think she'll say something particularly new on this. >> thank you for going there. does she run the risk of

effectively being, i don't mean to sound critical, but a one horse pony. in terms all she ever talks about is slack in the labor department. >> this is something she does need to address and where she has internal opposition. so i think this is something she has to talk about. but, on this particular subject, it's quite hard to say anything new. >> within the conversation scarlet, what i find so important here is fed people's surprise when there's an expectation of no news. they drop the bombshell when you least expect it. -- just trying -- how >> he's the economics guy.

>> the fed minutes leading up into this janet yellin comment period, are we set ourselves up for disappointment? >> i think perhaps we are because i think a lot of people have done their research and looked at equity markets going up in the 10 days after these speeches for the last 10 years. and i think there's been effectively front running of those positions. you've seen it go up now in the week before as much in this particular jackson hole period, or preperiod, as any period in the last 10 years. i think the danger is you got profit taking today. i think you're right to point to stronger data and i think the important thing you're getting is this breaking correlation, equities going up and the dollar going up. we've often had equities going up, the dollar going down. now in a phase where i think people are starting to think in the terms of the policy. >> our guest host for the hour.

>> let's ask our twitter question of the day. you ready for this one? what will be more influential in the 2016 election, fed or foreign policy. >> that's a really open question. we wouldn't have written that six months ago. >> everything changed now. let's get to some company news headlines. we start with the legal department of g.m., under federal scrutiny, the "wall street journal" says prosecutors want to know if company lawyers hid evidence about faulty switches. they are blamed for at least 13 deaths. gap gets a boost from bargain hunter. shopping at the retail chain helped the retail beat the quarter. more skinny jeans, everyone. and home depot picks its next c.e.o. u.s. retail president craig mcnear will precede frank lake come november.

>> coming up, we are going to go live to northern iraq. visiting a suburb and found some painful proof showing how much the local economy is really suffering from what's happening in that country right now. all right, this is bloomberg surveillance on bloomberg television, streaming on your tablet and phone and bloomberg.com. we'll be right back. ♪

>> good morning everyone. later this morning, 11rk a.m. on market makers, i'm the only one who doesn't have one, james park of fitbit, i have a bracelet that eat called sit bit. >> i have a watch and a conscience, ok? that's all i need.

>> 11:00, good morning everyone. we look much more seriously at iraq. > it's been a boom town, developers pouring billions of dollars into real estate. but obviously, a lot has changed over the past six weeks, and our actually took a look on the ground. >> just a couple of hours from the iraqi zone hits the self proclaimed subdivision. >> how much would one of those houses cost? >> cost, as of today, around $ 253,000. >> quarter of a million dollars. >> yes. between the land and the construction cost. >> he is a kurd who splits his time between northern vo and northern iraq where he founded american i will advantage just

outside the kurdish capitol. difference in big the gulf area, even in lebanon or turkey, they start to do to do business here. >> he and a european partner sank $6 million into this gated community and received another $10 million for water, sueage and lex trissity. back then, iraq and its sectarian blood shed hardly encouraged outside investments. but in recent years the oil economy's have helped them and the surrounding area develop supermarkets and high rises. >> the oil companies a very important to improve the economy. more so than projects by the staff member or family members of these oil companies. this also is going to create cash. and business to the area.

>> today, many of the city's cranes stand still, and construction projects have been placed on pause. attack the cided to kurdish area, many people worry, so people start to not invest their money in real estate. >> in 2012, the most expensive property sold for $600,000. local kurd's including government ministers mapped off properties hoping to rent them off. the recent war on their door step has left 10 thomes here unsellable. >> what happened when they're leaving, it's for a lot of months it has been slowed down. >> the cafe here caters to far few more custers leading others to debate their future. >> political stablity to run, so

the action is stable and we can boost the whole region. >> but across this region, stablity may not return for some time. >> you know, it reminds me of a bull market, when things are going up, it's fine. but suddenly when they start going down, everything falls much quicker than everything expected. did any of these developers have aon the tin gent si plan like what had happened with the i.s. has come to pass? >> based on the conversations i've had not really. this has really been a gold rush. people have made absolutely huge fortunes, especially in development in oil, in construction, all sorts of industry here have been growing at a high rate and seriously from all the conversations i've had they did not expect this at all. they always thought curd stan

was a safe place. >> i think you mentioned sames have dropped 70%. what are the contingent si plans, in other words how are they operating business, that money is not moving, people aren't there? >> well, one of the big challenges adam is there's no such thing as loans from the bank here. people run these businesses based on cash. the cash flow is very, very important. with those villas, the rentals, that becomes very problematic because they can't say to the bank, things will come back, help me out. it's all about what you've got under the mattress. >> i wonder, based on the conversations that you've been having over the past week in other parts of iraq, what are the challenges you've been hearing from these guys on running a business, even when you discount all the violence? >> well, i think the big challenge for all of them is

political uncertainty, that's been something iraq has faced for the last few years, longer really. the cash flow is really, really difficult to people. you have to think about how you're going to invest. do you have the cash onhand to spend that money, you're not going to be able to get it from the bank. >> thank you so much, reporting live from iraq. when he comes home, hope the return journey is a safe one. thanks so much. coming up in the next hour, we're going to stay on geo politics because the vice chairman of kiss sin jer associates, former under secretary of state, will be our guest host at 7:00 a.m. on bloomberg television and radio. this is surveillance on your tablet, smartphone and bloomberg.com. we'll be right back.

>> good morning everyone. good friday morning. to our top headlines this morning, here's head. >> irready jets were back in the air over gauda today. officials say -- security officials say the militant group killed 11 people suspected of spying for israel. and the bodies of malaysians who died in the ukraine jet crash were returned home. 20 coffins were draped with the national flag. they were among the 298 killed when malaysia air was shot down last month. they're holding the first day of mourning in it's history. that russian convoy is finally crossing over into crewian.

they're bringing aid to pro rurble rebels. they delayed the trucks because they thought there might be eapons aboard. >> looking at. talking here about how banks have been disrupted out of their traditional rules. they're certainly not playing matchmaker between some of bigger tech companies. he said there's no need for banks in a big capital. they're not based on the sort of thing that bankers can model. they're based on attributes that are much harder to quantify. such as will it change the way billions of users have interacted, is it run by the kind of visionary who could be a strong competitor if you don't bring him back into your hold. these are fuzzy things that bakers can't put numbers to. >> it's tough to quantify.

it's the vision thing. > it's almost a new finance. i know you don't want to focus on their specific transactions, but is there so much money sloshing around now that it is a new finance? >> i think in some worlds it is. there's a sort of sense when you're talking about cash rich companies that they can actually just intermediate the banks, there's a possibility of that absolutely. i think in this sense you're talking more about intellectual capital. it's quite hard to put a value on intellectual capital. i like to have numbers out there and present value them. but clearly this is not easy. >> yeah, how do you present was it?ulists, how much >> i don't know. i think what felix talks about are very valid given between

earnings reports. you wonder how the business plans will work out. >> how do you present value some 19-year-old wonderkind that may not imagine but may eventually be a next contributor. >> let's be honest, the gloom crew on facebook has been wrong, wrong, wrong. >> totally wrong. >> we will continue this conversation, along with the changing face of wall street. wall street trying to fend off the brain drain to silicone valley with its usual prescription, which is more money. we'll discuss next with a head hunter right here on "surveillance." ♪

>> good morning, everyone. "bloomberg surveillance." we get you ready for janet yellen's speech at 10:00 a.m. this morning. it is a closed door speech. not visible, but there will be a lot of headlines. "bloomberg surveillance." with me, scarlet fu and adam johnson. let me do a quick data check. it is quiet. 2.38%. yield, >> wall street is selling the idea that it is kinder and gentler. bank of america and goldman hours and are

handing up a racist to fend off defections to the buy side and tech startups. out pay raises to fend off defections to the buy side and tech startups. is it enough to get people to stay put? >> it is interesting. looking at inviting them into the banks in the first place and not just getting them to stay put. there have been massive layoffs. there is no longer the golden ticket of coming to work for a big bank. interns and associates, we had the tragic incident last year, the corporate culture has come in. tech startups and tech

businesses are not the kind of culture. it is come in, have fun, yes, work very hard. we want a culture where we nurture you and bring you on board. at the same time, we also have a lot of money. >> what kind of growth opportunities in the big banks offer these junior bankers? what is the incentive for them to develop their careers rather than fleeing for startups? >> absolutely. , two they come on board years down the line tech businesses are taking them out. >> what is a reasonable salary? what we actually talking about? >> a reasonable salary for an associate level is the bound -- around $70,000 or $80,000. >> you cannot live, in new york city. that in new york

city. >> it is the risk-reward. you work a couple of years at that level with the intention that you then become a big deal. there are better opportunities out there. the opportunities to go and work at google or facebook. it no longer has to be out of san francisco. >> in addition, the opportunity is also on the buy side. have always used sell side firms as a training ground force -- for talent. >> they demand knowledge of the bloomberg terminal. [laughter] >> that was a shameless plug. thank you. it is a case of, we are still going to let them sit there for

two years. we will still come take them out. what they are finding -- fighting now is the silicon alley and silicon valley. step in with understanding the sensitivities of talking about competition. pimco used to be in newport beach. they now have a big new york city operation. describe the difference of working for deutsche bank or a country club like bill gross on the rest of them. [laughter] what is the difference between sell side and buy side to a 20 fate-year-old -- 28-year-old? >> i think what you do see is that on the sell side, you are selling to a wide variety of clients. on the buy side, you are tending to be a little bit more internal

and make core decisions at a lower level. your influence and sphere of influence is narrow within the corporation. you, maybe itlls is your best friend's daughter who is 22 and graduating from university of pennsylvania and she calls and says, i need your help, i want to try to figure out what to do. do i go to wall street? do i go to a start up. i know i want to make a difference sunday, but i don't know how to get there. right nowst opinion is that wall street is not the answer. if it was 10 years ago and they were looking for a career, go and become a lawyer, go join wall street, if you want to earn the salary the people are talking about. now that is not the case. google.o >> would you tell her to go to a

procter & gamble and learn how to market? >> yes, absolutely. that would not be my first choice. i would talk about getting out .f industry finance is a very risky industry. it is not the golden ticket. i just wonder if you are just rolling a different dice. you have options in the tech industry that might have value or might not materialize, alternatively. >> there is a huge amount of risk in anything you end up doing. law, accounting, medicine our careers, in the sense that you study to do that career. wall street has a huge amount of risk. the tech industry has a huge amount of risk. if you look at the businesses and if you build a business

you get into that business, if you look at some of the big , whatsapp sold for a ridiculous amount of money to facebook. that is the ticket. it had a wall street bank, you may get to a vp or director. >> what is the hardest job on wall street? for those here and unlikely to move to google or facebook. >> that is a good question. >> is it equities, fixed income, currencies? >> for a headhunter, i think it is around that's a curative finance -- security finance cash business. everybody knows everybody. all you do is you call up your clients and say, who do i need to call? >> thank you so much.

>> we have breaking news right now. this is occurring as we speak. there is a series of headlines out of ukraine that is dramatically moving the markets. we see that in the 30-year bond. it has gone down to four digits. the is a huge move on 30-year bond over the last 10 minutes. german 10-year comes in. futures deteriorate a little bit. ukraine ministry said militants are using mortars on the convoy. there is a wide series of back-and-forth headlines. what do you see? >> gold prices are moving in little bit higher. >> the european union says they are seeking confirmation of the russian convoy situation. headlines, whohe

was firing at home? >> the answer is i don't know. the russian aid convoy ignored agreement on convoy processing and mortars are being processing. >> we will try to make sense of the headlines and get more details. this is happening right at the moment. coming up, we will discuss fed chair janet yellen's speech from jackson hole. . a lot is riding on what she says. ♪

>> good morning, everyone. "bloomberg surveillance." what will be more influential? federal reserve or foreign policy? that is a great question for friday. everybody would say the fed until six months ago. we have news across the bloomberg terminal of ukraine. a mixed jumble of substantial headlines. it moves the 30-year bond, among others, and gold, adam, you mentioned as well. the convoy is moving in and

there has been mortar fire. i cannot figure out who is doing the mortar fire. >> from what i understand, russia's aid convoy has entered ukraine. that constitutes an invasion, according to ukraine. this is according to a report. >> what is surprising is that we were under the impression that the red cross had effectively inspected the convoy and that somehow kiev had given the go-ahead. this comes as a surprise. it is really odd to see the 30-your move like that. let's get to the top headlines. causingbola outbreak is new travel limits. south africa is banning visitors from three west african nations. is pullingl guard out of ferguson, missouri.

the governor called them in on monday to restore order. perhaps we have a little de-escalation. fewer arrests have been reported over the last two nights. the florida ban on same-sex marriage. since the landmark supreme court decision last year. the ban is struck down in florida. >> are shrinking collective paycheck. it is shrinking as a share of national income. the globalm strategic advisor over at pimco. it is falling sharply in the wake of the financial crisis. it remains fairly depressed, even though it has come up a little bit at the end there. there is a distinction to be made.

wages,s labor income, salaries, benefits, work related compensation benefits and then there is capital income, investment returns, interest, dividends. we are talking about labor income and how it has fallen in favor of capital income. >> i would argue that is more on inequality. this is the great american conundrum the janet yellen will confront a 10:00 a.m. this morning. >> i didn't know about a fair share for labor. the question is, when does wage inflation start to accelerate. you are starting to see the beginnings. you see earnings picking up slightly. the problem is that it is going to be a slow hall. it is not going to happen anytime soon.

>> deutsche bank has a set of independent voices. do you and dr. hooper see wage inflation clicking in if we get a deutsche bank economy. >> i personally think that 3% gdp is within reach. i think you will see the beginnings of it. i think what you have got here is the phillips curve is very flat. the trade-off when unemployment and slacker being used up, it is very slow indeed. , productivity,s growth, pricing.

>> we certainly have productivity growth. >> some might say it has peaked. >> pricing power and the policy rate to read -- all as he rate. pricing power missing? up, discussing germany's negative interest rate. it is still negative? >> it is flat. >> it is flat. does that signal further financial repression? we will discuss on "bloomberg surveillance." ♪

>> "bloomberg surveillance." here is what you need to know. it is the nicest summer in new york city in 10 years. the high has been 91. there have been four days over 90. it is spectacular. fu, would you say almost on the edge of san francisco? >> almost. it might struggle to get to 80 degrees this weekend. >> it has been an exceptional summer, truly.

the empire state building. york.wn new we welcome all of you worldwide to "bloomberg surveillance." thank you for joining today. >> i'm scarlet fu with tom keene and adam johnson. let's get you company news from the files of "bloomberg west." shares of ebay rose over the talk of a possible paypal spin off. carl icahn has campaigned for the on kind marketplace to spin off its payment unit. microsoft plans to unveil windows 9 at the end of next month. it is to be named threshold. sparll remove the charm feature. charms bar. club will open its checkbook. soundcloud will open its checkbook. will speak atn

10:00 a.m. eastern time. she does so against the back drop of the grand teton's. also against a backdrop of chronic underperformance by the european economy. germany has a negative two-year yield. many europeans are underemployed and unemployed. alan ruskin is with deutsche bank. we discuss an unreal a real global economy. everything seems so tepid. can america ignore a europe's leading back? -- europe sliding back? >> unfortunately, it is not just europe. china has had a little bit of to and fro. brazil. i'm definitely still optimistic on the u.s.

there is quite a bit of momentum. the u.s. economy is looking just fine. >> the uneven pace of global growth. are these crosscurrents going to be a factor in the fed decision? reluctance, willingness to move interest rates? >> i don't think so. they will have their gdp forecast and the labor market will tighten at a reasonable pace and i don't think the drag effect from these other economies will be sufficient. is toe thing i would say watch the disinflation effects coming through from china. that is giving them more time to lay off in terms of actual tightening. today, we have janet yellen of the fed, mario draghi of the ecb, both speaking in jackson hole, wyoming. there is a change. how do we deal with the fact that the u.s. is improving

significantly faster as europe is stagnating? >> it is not a bad thing, obviously. for the rest of the world, the u.s. growing strongly is a great thing. itterms of fed tightening, is a mixed bag. for europe, the good news is the currency is going to weaken. the euro will weaken. the bad news is that we know when the fed tightens, there is a reaction somewhere in the world and emerging markets tend to suffer. it is a mixed bag they will have to deal with. they were complaining about two easy monetary policy recently. it is difficult for the u.s. to get it right for everybody. think both central banks have been burnt. the have been scarred by 2008 crisis. they are reluctant to tighten too soon. growth has tended to under

perform. there's a certain amount of unwillingness, but they will both get in fairly early on. here is the fact. we are in an equity market. i look at my living room at the macroeconomic textbooks. bernanke. the new books. none of what we're talking about is in those textbooks. to a guy like you, how original is this moment if janet yellen and mario draghi speak? >> larry summers had it on the nail when he suggested there is a natural disequilibrium we are having. you need asset bubbles to get the demand you want and get anything sustainable. we are in an unusual situation. >> do you have a confidence that the disequilibrium that we see right now can be brought back in in an orderly manner?

bill dudley would say yes. the you have confidence that we can get to where we need to get to with stability? >> i would not say i have confidence. i'm still very, very scared for example that at some point in time growth does slow and you still haven't really ratcheted up interest rates so monetary policy can ease again and you get policy traction in a normal way. >> alan ruskin, thank you so much. we will never briefing about at -- janet yellen and mario draghi later today. the forex report. it is a vanilla report. yen. euro-yen. it has done nothing for two weeks. sterling is weaker. to go toson is going harrods on his next soirée to london. throughs turning august. dollar canada.

>> coming up in the next hour, look at policy. kissinger associates. energy, and the environment. we will discuss ukraine, iraq, and all of the other troubles in the world. ♪ . .

>> this is "bloomberg surveillance." and druggie will

speech. quantitative easing has forced them to the grand teton. fractured foreign policy. did you sell in may? stocks rise ever higher. lucky you. good morning, everyone. this is a friday "bloomberg surveillance." from our world headquarters in new york. i am tom keene. joining me as always is scarlet fu and adam johnson. our guest host is robert undersecretary of state economic growth. let's get to a presidential morning brief. >> and a particularly brief brief. overnight, tom, people betting that the ecb is going to have to deal with deflation, and i should point out that at jackson hole today, we will hear from ecb president mario draghi. he speaks at 2:00.

janet yellen, chair of our fed, speaks at 10:00. and taylor and foot locker are before the bell. that is what i have got. >> let's get you company news headlines. we need to start with the legal department of general motors. the "wall street journal" says prosecutors want to know of company lawyers hit evidence about faulty ignition. gm says it is corporate in with investigators. boost from bargain hunters. shoppers at its old navy chainnt chain helped the beat estimates. the economy ways on consumer appetites for new fashion. ceo.depot picks its next the u.s. retail president craig enier will succeed blake. that is this morning's company news.

>> very good. robert hormats served under secretary clinton, by all policy ofn acclaimed the secretary demanded our foreign policy be links to export and import power. all has been pushed aside by a summer, and indeed august is not this friday, profound discontent. i do not know where to begin even with the new headlines on ukraine, but let's go to iraq right now. general dempsey overnight talking about the expanded vision across the border into syria. can our military project into syria, or should it stay focused on the three parts of iraq? >> well, it would be nice if they could only focus on iraq, but the fact is that i.s.i.s. or islamic state, whatever they call themselves, they see themselves as crossing the border, they do not recognize the border.

unless you go after them in syria, you have only dealt with one problem. they can go out of iraq and seek refuge, so they see themselves as not recognizing the border and from an american point of tow, it would be a bit naïve not recognize that and deal with them where they are. >> i think of the fletcher school in the wide study of our international policy. i am honored to ask you this question -- what does no boots on the ground mean? >> no boots means no fighting troops, but the united states as we know already has advisors that have been helping the yazidis get out of where they are. >> but now what? >> now what you need to do to have these advisors work is to identify what the strategy to their best of their ability of i.s.i.s. is and try to figure out how to do with them if they threaten major cities or major facilities or the dam. the dam was very important not just because they could have

blown it up, which they might have done, but the dam needs maintenance, so you have to keep maintaining it. it is a very serious problem. i am glad they went after it. it was an essential part of the mission. >> they had to improvise to include that. what do you presume is the depth of our intelligence now that we have added military advisers on the ground? good have never really had intelligence in syria because we have not had much relationship with that part. we have syrian army relationships, but there is a lot of syria we do not know a lot about. these people are not so good necessarily, the intelligence that we are going to have to utilize, whatever intelligence facilities we have, and get them in there to at least understand what the capabilities are of the free syrian army, which is not all that great at this point, but we may be able to do it without these people, but i think we are going to active a little bit more understanding of what is happening in syria. lurkingthere is concern

in the shadows, and that is the fact that six weeks ago, we had isil, heard of i.s.i.s., and all of a sudden it is now dominating the headlines, foreign policy -- what are we doing wrong as an intelligence gathering entity? >> one of the things we're doing wrong as we failed to recognize the fact that maliki had such terrible relations with the sunnis, gave the sunnis, gave opportunity to attract a lot of support from disaffected sunnis, old remnants of the baath this regime. people are not ideological bedfellows of i.s.i.s. but never the less saw it as better than the alternative. he other thing we have to recognize is i.s.i.s. does things quite well. they keep the infrastructure of so city's that they occupied that they want to make the water run, they want to make electricity operate.

they're are beginning to see themselves as governance. quite not as -- >> not as terrorists. on one are terrorists hand, but they want to be able to provide facilities to people to make their lives better as horrible as their lives will be because of this terror. >> you will support your president and secretary clinton and secretary. with the cacophony we are witnessing on "surveillance" every day, every week through this summer, what is the level of intellectual panic within our defense department? this is not international relations 101. this is not in the textbooks what we are seeing. x it is not. part of their problem is they are reactive. they are reactive. they do not seem to know in advance -- they are reacting to events. >> what is the theoretical construct our president is working under right now?

what is the foundational belief for republicans and democrats? >> i think he has yet to present the american people with a construct. he makes the point that when there is a human at hearing issue, we should help. he is going to broaden that somewhat, but we do not have a broader narrative. >> secretary clinton versus secretary kerry? >> her view was if you support them, and they are about as moderate as you can get in this broad panoply of concerns, to help to create a more stable place in syria. the weakening of the free syrian to doas enabled i.s.i.s. what it probably could not have done if there were credible opposition. >> arguably perhaps even mr. putin in russia. in other words, if we are not defining a u.s. mission in

iraq, we are doing in a in russia. >> in fact, there are russian planes supporting them in iraq. they are doing some type of ground support. the one thing we need is a strategy which pulls china, the u.s., and russia and all of these countries that support a moderate position and don't want tose islamic terrorists prevail because russia is vulnerable, western china is vulnerable, we are vulnerable, even india quite we are vulnerable to overload as well. >> we had headlines that were alarming for the financial market. russian eight envoy moves into ukraine, ukraine says that constitutes an invasion. how concerning is this? >> it is very concerning because we know the russians have pushed people in there. we do not know all of the details because the information is very murky, but the russians are clearly pushing the edges and probably did send people over, whether they were in army uniforms or not, they are

clearly encroaching on eastern ukraine. that is dangerous because the question is -- where does it stop? >> ukraine says russia convoy is breaking international law. to dovetail this into your tenure at goldman sachs you suggestl, would that ukraine, russia, and these tensions could dampen the real economy enough of europe to put europe back into recession? >> they can certainly weaken it. the cultural sector in europe is already hurting because the russian restrictions on sales of agriculture products -- >> it is more than that. it is psychological. >> it is certainly psychological, absolutely. russia is not the biggest economy in the region, but it is not unimportant to european countries. ukraine is not bigger, but it is a negative. the third is if you get these disruptions in this region, people become worried, they become concerned. even a few basis points off growth can be a big problem

because europe is growing very weekly. >> much to talk about with robert hormats. let's look at equities, bonds, currencies, commodities. really does not describe some of the tensions. yes, the 10-year yield, 2.39 percent, the 30-year bond is three basis points since we began the show, 3.16%, nymex barrel.rning $93.66 a >> barely positive if you look at dx why, but still on the former site. let's bring in our twitter question of the day -- what will be more influential in the 2016 election -- fed or foreign policy? tweet us @bsurveillance. we will be right back. ♪

>> good friday morning. it is "bloomberg surveillance." we welcome all of you worldwide. i'm tom keene, with me scarlet fu and adam johnson. >> tens of thousands of people in hong kong march 4 democracy. the issue at hand is whether beijing will allow universal suffrage in election for hong kong's chief executive in 2017. our guest host to this hour, bob hormats, vice chairman of kissinger associates. beijing will make a decision on whether hong kong's leader can

be elected democratically. how do you think this will end? >> the national people's congress will discuss this and make a decision relatively soon. trying tory to avoid out guess what is going to happen between hong kong and china. they have a relationship that is quite unique. it is one country, two systems -- >> for 50 years. >> for 50 years. they seem to have figured out how to make it work. my guess is that they will work it out. first of all, hong kong cannot afford a big occupy central, central being the financial district which is what people are threatening. the financial system is what makes hong kong work, creates a lot of jobs. the chinese to no one a lot of demonstration in hong kong because people in china pick up on a mac cause of them concern, so there is every reason to able that they will be

to work this out. they are very good. they've had these kinds of issues or talks of wars. they seem to work them out. they are very pragmatic on both sides. >> sure, there is pragmatism involved, but many students involved were toddlers when hong kong was returned to chinese rule in 1897. just how much has hong kong as a city changed in the last 17 years? major worldnow a financial center. they have been for a long time. not feel the same closeness to china that many of their parents or grants grants have because many of them came from china. a lot do not have their same kinds of links. they are also very pragmatic in their making money in their financial sector, but they do believe in a greater degree of democratization, and my assumption is that the chinese will give some deference to that, but they will still want to keep ultimate control, and they won't want to suggest

anything other than they still control hong kong, even though they will be more flexible. >> i like the way you put a -- it,testantism -- you put pragmatism will rule at the end of the day. >> coming up, it is the emotion of this friday in august. should the united states pay ransom for those kidnapped? we will speak to bob hormats about this. stay with us, it is "bloomberg surveillance." ♪

>> good morning, everyone. "bloomberg surveillance." i am tom keene. our guest host this hour, robert hormats of kissinger associates. also from the state department undersecretary clinton. adam johnson has our top headlines. >> they are very international, tom. far, president obama has not approved any airstrikes outside iraq. as we now know, the militants

are moving easily across the syrian and iraqi border. and malaysians to die to and the -- jet crash grass were returned home. they were among the 298 killed when the flight was shot down last month. the nations holding the first day of mourning in its history. a russian convoy is finally crushing into ukraine. bring a to the pro-russian rebels. ukraine officials delayed the trucks for more than a week because they were thought to be carrying weapons, and now as we have learned in the last hour, there seems to be some sort of fighting. >> really strident headlines. >> we do not know who is fighting at home. >> i am hesitant to associate the mortars with a convoy. >> it is a little confusing. >> those are the top headlines. >> fed chair janet yellen will labors slack in the

market. our economics editor michael mckee spoke with the former vice chair of making news in jackson hole. >> i think the main objective for her if the michigan ever achieve, which is not to make news. is one ofelieve it those junctures where she has a big message that she wants to get out that you have not heard before. she has been saying the same nothing a while, and has happened with the economy that should make her change that. >> so steady as she goes. our michael mckee joins us now from jackson hole. mike, mr. blinder indicated there is no reason for janet yellen to change her messaging, but we know jackson hole has a history of preceding policy changes by the fed. >> yeah, they would like to get away from that. this has always been a more academic conference. they got away from that during the bernanke years. a lot of the bernanke years

during the great recession. they would like to get back to the idea discussing things at a 10,000 foot level. it is ironic. i talked with alan blinder last night about the economy and he said the one thing that could derail it is events overseas, and look at what is happening with ukraine this morning, effecting markets even before janet yellen speaks. if that goes away, i asked him then how does the fed affect the markets. that will be the key question going forward. here is what he had to say -- >> nobody should expect that when lift up comes and he said funds rates come off of zero, let's just say sometimes in the first half of 4015, that the fed is going to be having the interest rates skyrocket. first half to be -- of 2015, that the fed is going to be having the interest rates skyrocket. it is going to move slowly. if that happens, the fed is going to slow down the game. it is going to start telling the

markets in words and by actions we are not going that fast. if you want to hang out there on get your portfolio chopped off, that is your business. what do youd alan, do as an investor, and he said he think they love people are going to go to cash and wait out the volatility, guys. >> wait out the volatility. that means less participation. you mentioned it its overseas how alan blinder mentioned that would e-mail the economy. what are you hearing about their concerns on androgynous stocks such as ukraine, such as iraq? >> they say basically there is nothing you can do about it. you know it is out there, you cannot really plan for it, and you cannot really plan for a reaction to it except to be aware that it could happen. other than that, they see the economy on a pretty good pass at this point. there do not seem to be any of the imbalances that would tip you into recession, so if we could avoid a real crisis, the

economy should be able to pick up and grow at least through the next year. the wall street notes making the rounds this week was the only hiking that will occur at jackson hole will be on the trails. is there something in all of this that we might be missing in that we should look for when miss yellen speaks today at 10:00? question is --al how far does she go index planning her position? does it become a defense of and does theger, market event see that as a more dovish view that would push out when they might see some tightening? the advice i am seeing is she will not do that, but nobody has seen the speech, so it this point, that is the real risk to the market this morning. >> mike, what about mario draghi? he will be speaking this afternoon at 2:30. that is close to the press, but you will be listening for key messages there.

>> yeah, that could be more important than janet yellen in a way because the european central bank is being pressed to do more sooner for its economy. does he get close to that, does he talk about how he assesses the european economy? there are nine members of the ecb governing council here, so it could be a very interesting speech from him. >> all right, janet yellen at 10:00 a.m., mario draghi at 2:30 p.m. our michael mckee in jackson hole. >> what is going to be more influential in the 2016 election? will it be fed policy or foreign policy? tweet us @bsurveillance. >> russian officials shut the doors to the country's largest mcdonald's. sayty regulators violations. is this a political move? we will see. we will begin in perspective of the damage that all the sections have caused on the russian

economy. this is "bloomberg surveillance." we are on bloomberg television, streaming on your tablet, your smartphone, and bloomberg.com. ♪

>> this is "bloomberg surveillance." i am scarlet fu here with tom keene and adam johnson. let's get you company news headlines. in the last hour, we got some murders and acquisitions in the utility sector. the duke energy selling a stake in some of its 11 midwestern power pants. -- plants. dynegy is buying energy also from capital partners. chrysler is recalling 16,000 models. rear shock absorbers might attach. sedans.ts chrysler 200 curated green mountain is rolling out a new version of its

coffee brewer. the machine can make a whole carrots of coffee instead of just a single pot. that is today's company news. ♪ >> our guest host, robert served atr. hormats goldman sachs international, but more importantly has served the nation on foreign policy across a span of 35 years, 1977 to 2013. it gives him a unique perspective on a critical, emotional, and intense question. there is nothing funny about it whatsoever. the united states of america does not pay ransom for hostages. with the horror that we have seen this week, dr. war to go back to the barbary war and talk this jefferson -- and thomas jefferson.

adamant about that. we do not pay tribute. first, the barbary pilots wanted a ransom from the united states. the reason we do not do that is a clear 1 -- we are so vulnerable in so many parts of the world that if we start negotiating for hostages, it puts a target and a price on all americans, anyone who wants to get money will go after americans and then go to the u.s. government is a give us money, so in fact, it makes americans more vulnerable if we start paying money for hostages. it makes americans more likely to be taken. distance, them a fully family, the parents of james foley, have been uncommonly graceful in their approach to this and the emotion and the intensity. >> he and they have been enormous the courageous, and i give them a great deal of credit. >> if john kerry spoke to the hostages, nothe

ransom, what would you say to them? >> eye with a what happened to their son was an enormous tragedy, and the united states was going after him, but he was moved to the very end, but they really were trying to get him and free him, so the u.s. government does not forsake hostages. we use the military frequency to try to free them, but paying ransom is a different matter. once you start doing this, all american military forces, all american fallen tears, all american contractors become much more vulnerable, so this kind of situation could be replicated in many parts of the world. the u.k., by the way -- withe u.k. is in concert us on this policy. ask for the same reason. >> france is not. let's go across the english channel. compare and contrast what france does with random. -- with ransoms.

>> many do pay. if you look at hostages taken, there are a lot of european hostages taken because people like isil and other groups think they can get money, and al qaeda. one reason they are able to get a lot of money is that they take a hostages and then trade them back for large sums of money, so it is part of their strategy, the business plans of some of these groups, to capture hostages, get ransom, and then use the money to capture other hostages. journalists too exposed to these threats? is a question of they should not be there to become hostages? most cases, journalists are protected and groups do not go after them because they want the publicity that journalists provide. i.s.i.s. is barbaric. they are very different. we have embedded people with other groups. i.s.i.s. is just a -- these are horrible people, brutal people, and they will kill you, so they are very different. i would stay away from them for just the reasons that we have seen.

>> robert hormats, thank you so much, very valuable in this time of great national distress. >> as we await janet yellen's comments at 10:00 a.m. this one in, we have futures moving to the downside, off by almost 10 2.39%. 10-year yield at >> this is "bloomberg surveillance." we are on bloomberg television, bloomberg, we are streaming on your tablet, your phone, and at bloomberg.com. our guest host or the hour is bob hormats of the kissinger associates and he is the former under secretary for economic growth. topet's get to some headlines. killed two people, but more palestinians died at the hands of hamas. a security official said the militant group killed 11 people suspected of spying for israel. the ebola outbreak sponsor new travel limits. among them liberia.

is the national guard pulling out of ferguson, missouri. the governor called them in on monday to restore order. the fatal shooting of a black teenager by a white officer sparked protests. those are your top headlines this morning. >> scarlet, russia's aid convoys crossing into ukraine this money, and shots are now being fired. still not the cross-border envisioned when russia joined the wto. angela defines u.s. russian relations in her book, and she joins us now. how far outside those limits have we gone? >> from the wto? well, i guess we already have russia preventing the import of all kinds of foodstuffs from europe, from other countries. people are already thinking about bringing cases against russia, so it is tough, i think 18 years to associate the dubya

to you agreement, but there are lay line of voices in russia who think that russia should not have joined, so it is a rather an big u.s. attitude toward the wto. >> ambiguous given the fact that mr. putin enjoys about an 80% approval rating, which is roughly double that of mr. obama. is there a reset button right now that one of the two leaders can push? >> i do not think there is a reset button at the moment. i think the reset is over. i think we are looking at is a crucial rage. mr. putin will meet with the ukrainian president on tuesday. chancellor merkel is going to keieve tomorrow. people will try to get talks beginning on possibly a cease-fire, a solution to a this is goingwar that on in ukraine. we will not see a reset at least for the obama administration. ex our guest house is bob hormats, formerly of goldman

sachs and the undersecretary of growth for the economy. . question for the professor >> angela, good to see you again. question? what is the situation in terms of the russian economy? how much impact have the sanctions have had so far, and to a more pointed question, do they or are they likely to have any impact on pollutant's decisions, or is he going to move ahead regardless of how much adverse effects they cause the russian economy? >> that is a great question. impactready had an economically. international companies are deferring any more investment deals in russia because of the uncertainty. they do not have access to bank credits. we section most of the big banks, the europeans have sanctioned all of the russian big banks, so it certainly has had an impact. also these counter sections against the west,

anti-supermarket shelves in moscow. so far they have not changed putin's behavior and russia's actions in ukraine, but i think the fact that the ukrainian army is making gains, it is slowly and very -- there is a lot of violence there -- taking over some of the towns held by the rebels. i think that has had some impact. the separatists are divided. they are fighting with each other. we have to be very cautious. every time we think that mr. putin is willing to take the offramp that he has been offered, then the next day you can see contradictory evidence when more supplies, more material, more men are being sent to eastern ukraine. will seesure that we those sanctions impacting on the political situation. >> professor stent joining us from georgetown, thank you, professor. always good having you. we appreciate it. >> what is good is the relationship between russia, vladimir putin and angela merkel of germany. they always had that not intimacy -- >> she speaks russian --

>> and he speaks german. >> right. there is a camaraderie that exists. >> two things to bear in mind. one, we need to provide support to ukraine's of the economy does not collapse. >> hold that thought, bob. we will be back with more on "surveillance." ♪

>> good morning, everyone. "bloomberg surveillance." an important moment in the 8:00 a.m. hour. we returned to washington and a summer of discontent, john mclaughlin, former acting director of the cia with decades of experience between the cia and foreign policy, look for that in the 8:00 a.m. hour, "in the loop" on bloomberg television. good morning, everyone. i'm tom keene. with me scarlet fu and adam johnson. it is time for a bang up duo morning must-read. let's get to that with adam johnson. >> yeah, want to punch. me first, then you. this is john copper and writing in the wall street journal. is a professor at the university of chicago. the fed has a huge balance sheet, $4 trillion of treasuries and mortgage-backed securities, $2 trillion in reserves, 1.3 trillion dollars of currency. when it is time to raise rates, simply raise

the interest of his own reserves. it does not need to sell trillions of assets. >> to unload the paper, you literally go interview the interview, should they or should they not. >> his point is simply hold the paper, let it go to maturity, and if you want to effectively raise rates, you pay a higher rate on those reserves and he will keep that money from going back to -- >> he makes it sound so simple. >> that is the less disruptive, to borrow the phrase of a moment -- >> it has never been done before. >> of this is over too much more of what yields have been doing. mr. cochrane does not get along mr. cochrangman, so of chicago, here is paul krugman, professor of the evil empire as far as conservatives are concerned. there is not a shred of evidence that cutting tax or it's on the wealthy boosts the economy, but there is no mystery while republicans like paul ryan keep claiming that lower taxes on the

rich are the secrets to growth versus dovetails. the interview with mr. ryan earlier this week on bloomberg television, adam, this is the anddebate between cochrane krugman. >> that is right. on the one in your to be an activist, and on the other, polar opposite, john cochrane says no, do nothing other than raise the rate on reserve. >> whatever your politics, paul krugman's column, it brings up a lot of the debate. >> it will get people's blood boiling. a lot of people. >> it will come extremely well done whether you disagree or agree with the professor. , however thets u.s. at surrogates itself out of quantitative easing, however that -- u.s.b hormats, however the gets itself out of quantitative easing. slowly, but atg

least we are doing it, so the u.s. is actually in a stronger position vis-à-vis the rest of the world. people have a general sense of where the fed is going, how it is going to do it, and when it is going to do it on clear, but i think the fed is a steady and courts for the world these days. >> certainly compared with some of the other central banks. our twitter question of the day today -- what will be more influential in the 2016 election -- fed or foreign policy? tweet us @bsurveillance. ♪

>> good morning, everyone. he will be trout-lag. that is what happens when you come from jackson hole. sternhenry, and whnyu's school of business, he will be with us monday. peter henry i am sure with some important thoughts of the yellen and draghi moment. >> this is "bloomberg surveillance." i am scarlet fu here with tom keene and adam johnson. our guest host, robert hormats, former under secretary for economic growth. let's get you copy news from the files of "bloomberg west."

shares of ebay talking about a possible spinoff. the move could come as soon as next year. activist investor and shareholder carl icahn has campaigned for the online marketplace to spin off paypal. microsoft plans to unveil windows nine at the end of next month. it is codenamed threshold. it was a new start feature while removing the charm's bar feature. soundcloud says it will start paying artists and record companies. it was it in line with competitors like youtube. boasts 175 million unique listeners each month. that is from the files of "bloomberg west." >> that is a huge deal. whether spotify, soundcloud -- >> artists are getting squeezed out. >> do you still get royalties from your music? >> no, well, yeah, $2.30. >> what is the name of the album again? >> well, there are a few.

>> he is avoiding my question. >> and for viewers who are thrown by scarlet's comments, you are an accomplished guitarist and folksinger. >> you know who is -- cory johnson. >> you guys have a lot in common, you both have a music childhood -- >> it was a twisted childhood. we were forced to read "the winter of discontent" in seventh grade. now to the summer of discontent, all presidents must affect normalcy. president obama attempts to make the green in three strokes, he attempts to ward off critics including his former secretary of state hillary clinton. obama andhost served clinton, knows the new normal is that there is no normalcy. a lot of shots being taken at the president obama, but i president has to stay steady as

she goes. >> obama came in as a reluctant internationalist. his goals were to hold back from afghanistan and iraq. now he is confronted with new crises. i think he did not handle and has not handled syria very well at all. numerous mistakes there. i do think he understands now that he has to a much tougher position on the islamic state because it is a threat to the united states and to the region. the problem is that the american people do not see a narrative, they do not see strategy, they see a lot of reaction. i think by bombing i.s.i.s., that was a good thing, and he has to keep it up. in ukraine, he has done reasonably well in dealing with a very tough situation where he cannot put american boots on the ground because americans do not want it. >> weather economy or geopolitics, does this president suffer because he did not have executive service prior to becoming president? >> i think he has not organized

in assc process an precise a way as he should have. he gives very good speeches, but he needs to develop good strategy and implementation is key. i will give two examples. one, we really need to do more in the middle east region to ries likeounti jordan and lebanon. we need a broader regional strategy. and the other one is europe. the fact is if ukraine fails economically, it plays into said's hands because he look, ukraine moves to the west, its economy has failed, the west has not given them enough money to sustain them, and it strengthens him at home because ukraine looks bad, and it strengthens him internationally. the other is his goal is not just a weak and divided ukraine, which it is. it is a weak and divided western europe, a weak and divided european union, and he is

utilizing all these extreme as hising parties supporters because their goal is to weaken europe, his goal is to weaken europe, and he has been playing up to them. in fact, the observers that he called upon to validate the plebiscite and crimea were made up of these extreme right-wing populists third parties, and i think we have to realize we have to have closer corporation with europe. >> i am so glad you are typing this all together for us and adding your perspective. let's connect the dots. in syria come it was president obama who drew the redline, and it was mr. putin who said i will help negotiate effectively a way around the chemical weapons. might it be that mr. putin thought that mr. obama owed him as a result, and so when he went into crimea, he thought it would be a little softer, and instead the obamad --

administration did not. >> i suspect he probably delinks the two. to focus a syria was lot of attention on chemical weapons, but most of the people in syria killed by the assad regime were not killed by chemical weapons, they were killed by the army of the government, so even to deal with the chemical thing was good, but it did not deal with the fundamental problem. the fact that he drew the red line and then was unwilling to take tough action undermined credibility and it gave i.s.i.s. and others the feeling that maybe the americans really are not dedicated, tough enough to play the role in this very tough part of the world. >> we can go on and on about this, but we do want to bring in our agenda and get your thoughts there, too. get us started on what you are looking at. >> 2:00 p.m. this afternoon, janet yellen will speak at jackson hole. we will have full coverage across bloomberg television and bloomberg radio for that closed speech. bob hormats, we have not talked

much about economics with you today. what do you need to hear from janet yellen? >> janet yellen will talk at she did for a long time, did the economic club here in new york, about the uncertainties of the labor market. i think that is the one thing that really troubles her. they are not sure why the labor market -- >> there is a mystery to it. >> she admits that and she admits that a lot of people are not going back into the labor market, it is a very soft labor market. that will keep the fed on hold for longer than it otherwise would be. >> lower for longer is the idea there. >> and adam pozen suggesting earlier this week humility is in order. i asked tom, you have got to head over to the radio where "bloomberg surveillance" continues. i will give you my agenda, which is the stock market. s&p 500 hitting its 20th record. on that 2000 in level. i know it is a nice, round number and there is no real significance to it other than it is a nice round number, but people look at that and they think of it as a sign that perhaps there is a greater

bubble that will be painful, not to blow up, but to wind a little bit. >> you think about the huge gains last year and the naysayers who say you cannot possibly have another up year. we are up almost 8%. >> good point. we want to bring up our twitter question of the day. we asked everyone -- what will be more influential in the 2016 election -- fed or foreign policy? of the answers. it looks like foreign policy 44016 due to the economy improving but foreign issues escalating. bob hormats, would you agree? >> i think we probably know where the fed is going. we do not know quite when they will get there or how they will get there, but we know the direction. that seems to be to a degree the case. foreign policy, we can have some very nasty surprises. we can have a very nasty surprise in ukraine, very nasty surprises in the middle east, which could disrupt the energy market, so i would have to say the big unknowns are more important than the fed.

>> people vote with their pocketbooks before foreign policy unless we declare war. they goes back to the idea of the big unknown. and finally -- neither. daschle interest lobbyists will wins -- a special interest lobbyists will win as usual. >> that is the cynical view. there is an issue on top of my tonight at metlife stadium here in new york, the giants will be playing the jets. is the mascot of metlife. the big question is, and bob hormats, feel free to way -- who will start for the jets? geno smith or michael vick? >> i have to ponder that question. it is well above my pay grade. >> you interviewed >> i am a couple of weeks ago. >> he was very intent on the idea that geno smith was going to make the transition from rookie quarterback to order direct leader on the yield. michael builvick was the guy

brought in afterwards. he will go at geno smith. wife am with you. >> "bloomberg surveillance" on radio continues. "in the loop" on television. bob hormats, thank you. have a great weekend, everyone. ♪